Greetings, and welcome to Endeavor Mining's Full Year And Fourth Quarter 2018 Webcast. At this time, all participants are in a listen only mode. A brief question answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Mr.
Sebastian De Montesou, CEO of Endeavour Mining Corporation. Thank you, Mr. Lemontazu. You may begin.
Thank you, operator. Good morning, good afternoon, everyone. Thank you for joining Endeavour Mining's Full Year 2018 results presentation. I'm Sebastian De Montesuse, CEO of Endeavour Mining, and it's a pleasure to be talking to you once again. I encourage you to note the disclaimer and notice about forward looking statements.
We will be adopting today the usual format. And here with me are Vincent and Patrick. I will start by talking you through some of the highlights from Q4 as well as the World Year. Before the team goes into the financials and operations in greater detail. Here you can see our 4 strategic pillars and how the company tracked against them over 2018 It has once again been a successful year for Endeavour.
As you will have seen from our release, we beat our full year guidance for both production and cost following a very strong 4th quarter. We you would have noted that construction at Ity CIL development is continuing to track 2 months ahead of schedule while remaining on budget. We are in the wet commissioning phase, and we expect to pour 1st gold in the coming weeks. Our exploration program has also continued to enjoy success. The maiden resource at Houndeghari Pump discovery was our most notable exploration achievement in 2018.
In 2019, we look forward converting this discovery into reserves. In 2018, we continued to actively manage our portfolio closing the sale of our noncore Tabakoto mine in December. Despite the significant investments made over the past years, our balance sheet remains strong as we remain well positioned to fund the remaining spend on the Ity CIL project in 2019. Let me now go through each of our pillars in more detail starting with the 1st and operational excellence. I have said before that safety is our first priority and we continue to have a good safety record on the construction side, which is always a challenge.
The team is proud to show that progress at Ity continues with not a single LTI, extending our team's perfect safety track record following the Agbaou and Hounde Belt. While I'm pleased with our record as a group, especially against the industry average, any LTI is 1, too many. And so we must and we will continue to treat this as a priority. Now turning to our key performance metric. On this graph, you can see that we shaded in our discontinued operation.
The team is very proud to have achieved production guidance for the 6th year in a row. Total production increased by 64,000 ounce due to the benefit of a full year of production at Hounde. Looking ahead at 2019 production from continuing operation is set to increase due to the startup of the Ity CIL project early in the second quarter. With additional growth expected next year due to its full year of production. As you can see on this one, 2018 also marked the 6th consecutive year of meeting the all in sustaining cost guidance.
All in sustaining costs continue to trend lower, achieving $843 per ounce for the year, including Tabakoto, and $7.44 per ounce for the continued operations, and we expect it will decrease further in 2019 to between 7 $80.10 per ounce. For me, this trend is a very important metric to measure the success of our strategy laid out in 2016. By increasing the quality of our portfolio, notably with the addition of our Hounde and Ity CIL flagship assets, we've been able to significantly lower our all in sustaining cost across the organization as we now produced a below $800 per ounce in line with our objectives. On this next page, we look a bit more closely into the results by mine, You will notice that all of our mines achieved their production targets with both Hounde and Ity significantly outperforming their guidance. On the cost side, Hounde, Ity, and Agbaou significantly outperformed their guidance, while Karma finished within his guidance, resulting in a strong overall beat for the group.
We will dive into greater detail by mine later in the presentation. As you can see on this next page, our all in margins from continuing operations have significantly increased, up $82,000,000, This is mostly due to the inclusion of Hounde for the full year, higher realized gold price and an increase in gold sold at Ity, which offset the decrease in revenue generated by Agbaou. With Ity coming on board in the coming weeks, we expect a further significant increase in 2019 2020. Due to the quick payback periods of both Hounde and Ity, which are around 2 years at current gold price, we expect to see a significant improvement in our financial flexibility in the short term. As previously mentioned, project development remained a key focus in 2019, thanks to a great effort by the team in particular under Peter Holson and Shane Bud leadership, we continue to make great progress and are tracking 2 months ahead of schedule at the Ity CIL project.
We are immensely proud of how this project has progressed. Let me briefly highlight a few project milestones now. Over 8000000 man hours have been carried out on the project result in LCI. The overall project completion stands at more than 98% and we still expect the 1st gold port to work for in the coming weeks. We have completed the commissioning of the bowl and SAG Mills and in preparation for production or was introduced into the process plant with all our tanks filled.
On the CapEx side, last year was very capital intensive as there is just $50,000,000 to $60,000,000 remaining to be spent in 2019. On this next page, you will see a few pictures. Starting with the top left, you will notice the ball and sag mills, and below that an aerial view of the plant. At the top right, you see the power station. We are connected to the grid, but I have this backup station as well.
The 11 KV switch room and 11 KV overhead power line have been commissioned, while the 90 KV transmission line construction is nearly complete. And the backup power station has been commissioned. At the bottom right, you'll see the primary crusher with oil feed available on the home pad. Exploration, of course, continues to also be one of our key pillars and our efforts are paying off. Since our exploration strategy was announced at the end of 2016, we have had well defined priorities for each year, thanks to Patrick, 5 year strategic plan.
The 2018 exploration program mainly focused on delineating the potential at Endeavour's 2 flagship mines, Bounde and Ity and on Developing Endeavour's organic growth potential at Kalana, Fetekro and other greenfield properties. In 2018, we've committed in total $53,100,000 to exploration. And you can see from the chart how the capital has been allocated to our various As you recall, we presented this slide 3 years ago laying out our discovery targets both for the group and by asset. Since then, we've been tracking our progress in gray, you see what has been discovered so far. Clearly demonstrating our strong progress towards this objective.
In more detail, here you can see that we are on track to achieving our 5 year target with 4,200,000 ounces already discovered from mid-twenty 16 to 2018. In addition to the discoveries made, the team in particular pleased to, with the quality of the ounces found. Because our 5 year exploration strategy has been done based on the screening and ranking methodology, we are focused on utilizing our exploration dollars to fund resources that can meet the group's goal of producing at below $800 per ounce. As such, most of our discoveries are above 2 grams per ton with half of them being oxide material, the rest fresh material and no sulfide. We are proud to report that our discovery costs remain low of $13 per ounce.
As you can see from this slide, this is 6 times lower than the discovery costs incurred by our West African peers. And it supports our view that one of the most effective ways to grow and sustain our business is through the drill bit. Overall, net of depletion, our M and I resources increased by 900,000 ounces, thanks to the discoveries made. Due to the time lag between discovery and reserve conversion, our reserve decreased by 600,000 ounces. However, we expect to add reserves in 2019 as the answers found are converted to reserves, notably with the Kari Pump discovery at Hounde.
You've all seen now this Magic Box graph before, and it continues to remain integral to our business strategy for Endeavour. As a reminder, I want to focus management attention to high quality assets that have low cost long mine life and generates cash. The bubbles in white represent the noncore discontinued asset. As you can see, we have successfully strengthened the quality of our portfolios through the construction of Hounde ITCIL. I will now pass on to Vincent who will go through the financials, cash flow and balance sheet.
Thank you, Sebastian. So let me begin, on Slide 20, with the breakdown of our production and cost profile over the past year. And by individual mine. As Sebastian mentioned, the 4th quarter was strong compared to the previous quarter, with 174,000 ounces produced versus 139 in Q3. As always, Q3 4 coincides with the end of the rainy season.
So this has naturally a positive impact. As it has been explained, company wide production increased in 2018, as we benefited from a full year of output at Hounde, which has produced 277,000 ounces in 2018. ITAPIC has also significantly contributed to the production increase with an historical production of 85,000 ounces, thanks to the access to Bakatore High Grade Peace. At Karma Production, it increased, as guided, despite a lower process grade as the plant optimization work done in 2017, increased stacking capacity ahead 4,000,000 tons. Production at Agbaou has declined as expected, but has also been constrained by lower grade areas due to a change in the mining sequence.
On Slide 21, I will walk you through the main line items from revenue to all in margin. Those numbers are only reflecting continuing operation and therefore exclude for both 'eighteen and 'seventeen, Tabakoto and then Zema numbers. The top line increase, as I just explained, and I want to note just a couple of other points. The gold price average is, as usual, takes into account the streaming financing for Karma, for Karma. Without Karma, the gold price average was $1268 per ounce.
Realty increased due to the higher realized gold price, representing approximately $67 per ounce sold for 2018 compared to $59 per ounce in 2017. Non sustaining capital spend increased by $26,000,000 due to the addition of Hounde and an increase at Agbaou for the waste capitalization of the West Pit. Non sustaining exploration spend increased in line with our exploration strategy. Overall, our all in margin from continuing operations increased by 80% over last year. On Slide 22, you can see the cash flow over the periods compared to last year, starting from $184,000,000 all in margin, as I mentioned earlier.
As expected, there was a working capital inflow in Q4, amounting $79,000,000, reducing the total outflow to $10,000,000 for the year. The main components for the full year outflow were that the receivable for the full year 2018 is an outflow of $4,700,000. This 2018 outflow premiumly related to an increase in VAT receivable at Hounde in line with its ramp up for $5,000,000. And the recognition for $9,000,000 of the Curran portion of the Tabakoto sales receivable. Inventory where for the full year an outflow of $17,000,000 relating primarily to a build up at stockpile at Hounde, which totaled $29,000,000 at year end.
This was offset by a decrease at Ity, where mining operation is winding down as well as Karma, our inventory levels are being reduced to optimized level. Prepayments as well, for the full year, is showing a $5,000,000 inflow due to the decrease of prepayment at Hounde and at Ity CIL. Trend and other payables are $6,500,000 inflow for the full year 2018. At year end, there was a $12,000,000 outflow at Karma due to a change in supplier term from last year and $12,000,000 outflow in payable at Agbaou, which was the result of the site having a logistical issue in paying 1 key supplier last year. This was offset against an inflow in trade payable of $22,000,000 across Ity and Hounde.
The changes in long term inventory relates to a new policy that was adopted by the group and is consistent with IAS 1, whereby strategic spare parts and stockpile material that will not be used or processed within 12 months is treated as a non current asset. The outflow in the year represents the buildup of this newly classified item and relates mainly to Hounde but also ity and Karma supplies. At Note 3, it corresponds mainly to, 1st, the interest paid for $24,000,000 as a result of the debt increase to finance the construction of Ity CIL plant, but also to the lease, the repayment for 21,000,000 for the year. The $267,000,000 project capital at Note 4 is comprised mostly of the Ity CIL as you would expect. And you can see the impact of our convertible issue and debt management in notes 5 and 6, leaving us with a neutral cash inflow for the period.
On Slide 23, the improvement in our overall portfolio quality with Hounde now on stream has led to a significant improvement in cash flow from operations from $1.45 per share this time last year to $2.43 per share at the end of 2018. That represents an improvement of 63 percent on a year over year basis. Page 24, you see the change in cash based on more traditional cash flow metrics, We started the year with $123,000,000 of cash to which operating activities added a further $251,000,000 We have invested significantly during the period, amounting to $453,000,000, particularly on growth capital, where we have $266,000,000, but also $86,000,000 of capital expenditure in ongoing operations and $49,000,000 in exploration. As you can see, the amount invested into our businesses to improve the portfolio's quality are quite important. These investment efforts would not have been possible without the balance sheet management effort done over the past 2 years.
While our debt position has increased as a result of the CIL project, advancing much quicker than forecasted, Our balance sheet remains strong and we expect to generate significant free cash flow in 2019. Due to the quick product period for both Hounde and Hiti, we expect to rapidly de leverage ourselves with Ity CIL coming on board. Our net debt to EBITDA ratio amounts to two times, which is a quite high level for us, but it compares to an EBITDA calculated over the last 12 months, which means without ity CIL. So as the group EBITDA is going to increase very significantly in 2019, with the Ity CIL, the ratio should mathematically decrease by almost 0.5 times and the 2019 cash flow generation should enable the group to significantly deleverage at the end of 2019. On page 26, you see again that we are well funded to pursue our additional growth activity.
$124,000,000 undrawn with our RCF and $120,000,000 in cash amounting to $244,000,000 in liquidity sources. Addition, we have our expected inflows from the sale of Tabakoto and Nzema, and of course, cash flow being generated from our operations. On Slide 27, I give here the net earnings breakdown. So this fleet This P and L leads to net earnings from operation of $17,000,000 for the full year and a loss for discontinued operation of $155,000,000 which is a mix between a loss on disposal for $69,000,000 and the loss operating loss in 2018 for $86,000,000 for Tabakoto. One part important is to notice.
One important thing is to notice that the current income tax expenses have significantly increased from $10,000,000 in 20.17 to $67,000,000 in 2018. This important increase is due to the 1st full year commercial production for Hounde, which totaled $4,000,000 for the period. This is also due to an increase of the taxable income at Ity, as well as a provision for tax assessment audit at Ity also. For the one interested, we have given a detailed analysis per mine the MD and A for the tax for the pure own tax variation. The adjusted net earnings show a profit of $75,000,000 for 2018 compared to $60,000,000 a year ago.
This is $0.49 per share for the full year 2018, and it has reached $0.15 per share for the fourth quarter 2018. And that's it for me. So now I hand back to Sebastian who is going to present the performance deadline.
Thanks, Vincent. I'm going to take us through quickly our individual mine operations. Turning to Hounde First, we remain delighted about how the mine is performing. The mine experienced a record quarter in Q4 mainly due to significantly higher grade following the end of the rainy season. We ended the year significantly exceeding full production due to mainly to both the mining activities and the process plant performing above their nameplate capacities.
In terms of all in sustaining costs, this amounted to $5.64 per ounce, well below the guidance range of $5.80 to $6.30 per ounce. Due to the outperformance of the operation. Looking forward, Hounde is expected to produce between 230,000 to 250,000 ounces in 2019, continuing to outperform its feasibility study estimates at an all in sustaining cost of between $7.20 to $7.90 per ounce. As you know, we expect to mine the Bouere deposit in late in the second half of twenty nineteen. And while throughput is expected to remain above nameplate capacity, the mix will change to mostly fresh ore by the end of the year.
Also, in line with our focus on reducing working capital, The grade will decline slightly as we process more ore from lower grade stockpiles. Looking ahead, we are excited about the future of Hounde based on bringing carry pump into the mine plan. Reserves are expected to increase in midyear as the current pump resource is expected to be converted to reserves following the completion of the ongoing metallurgical tests. By the way, the preliminary results are indicating very good gold recovery rates similar or better to the Vindaloo deposit currently being mined. And now I'll hand it to Patrick to walk you through the Hounde exploration.
Hi, everybody. So in 2018, our exploration program in Burkina Faso and mostly on Hounde amounted to $14,000,000, totaling approximately over a 165,000 meter of drilling. And it was indeed the strongest exploration focus for us in 2018. And as you may have noticed and as Sebastian reminded, we had tremendous success notably in the Kari area with already 1000000 ounces of indicated resources demonstrated on Kari Pump, and this was done from scratch in only 1 year. And also, we announced discoveries in Kari West And Kari Center.
So, looking ahead to 2019, Hounde will continue to be the priority exploration focus for us with a total budget that we expect to be up to $17,000,000 and we target to deliver more than in 2018 2019 because we are targeting around 195,000 meters of drilling. The priority would be to aggressive exploration of the very large carrier anomaly and also to address some other target like Vindaloo Underground, Vindaloo South and also large scale target as a Ground Espoo. Set back to you.
Agbaou, Q4 was a good quarter for Agbaou. Production increased as expected mainly due to a significant increase in mill grade following the west extraction efforts over the course of the year. Which gave access to higher grade areas. All in sustaining cost decreased, mainly due to increased gold sales, which were offset slightly by higher sustaining cost driven by increased waste capitalization activity. Looking at the full year, as you can see on the waterfall chart, on the right, production decreased mainly due to the lower grade process as the lower as the lower grade stockpile feed supplemented the mine feed.
To allow waste cap activity to progress quicker. In addition, mining was constrained to lower grade areas. All in sustaining cost amounted to below the guided range as a portion of the planned waste capitalization was shifted to 2019 and more oxide material was processed compared to the initial plan. Turning to the 2019 outlook. Agbaou's production is expected to decrease as the plant throughput is expected to decline with the oxide ore blend goes from approximately 80% in 20 18 to 60% with the remainder of the feed comprised of fresh and transitional ore.
Despite plans to man higher grade ore, the average cost as grade is expected remained fairly flat over 2019 due to the use of lower grade stockpiles. Onto you, Patrick, for exploration.
In 2018, we spent approximately around $4,000,000 in exploration in Agbaou area for a total of exceeding 27,000 meters of drilling The focus of this exploration was twofold going on, doing some exploration on a few parallel trends to the Agbaou structure and also concentrating part of the effort on the extension of the existing pit, the North Pit, West Pit and so on. In 2019, we plan to go on in exploration with a slightly lower exploration budget up to $2,000,000. We plan also to get along the extension of the get in the prolongation of the existing pit, which is going to be the main target for 2019.
Thanks, Patrick. On the Ity heap leach side, 2018 was guided to be a transition year for the heap leach operation. With greater priority given to the CIL construction activities, particularly in the second half of the year as the main goal was to stack ore from lower grade stockpiles. However, Ity's heap leach operation performed above expectations, particularly in Q4 as mining was opportunistic conducted based on equipment availability and the good progress made on Ity CIL construction. As you can see on the next slide, ity's heap leach mine production significantly exceeded the full year guidance, mainly due to the opportunistic mining that was carried out in the second half of the year.
The waterfall chart demonstrates the main driver for the increase in production over last year, which was the higher grade ore, which came from the Bakatua deposit. Before starting the CIL production, mining and stacking activities for the heap leach operation ceased in mid December. Residural gold from the heaps of up to 5000 ounces is expected to be recovered in Q1 this year. Patrick?
Again, ity was also just after Hounde, our main exploration focus in 2018, where we spend close to $9,000,000 for our totelling drilling meter, very close from 50,000 meters. The main focus of our exploration was indeed the Le Plaque discovery was that was announced earlier on and for which very limited resource was announced, let's say, at the end of the first quarter of 2018 with around 130,000 both indicated and inferred at a quite significant grade in the range of 2.6 gram per tonne Actually, we have been working most a lot on this area, which is an exploration license contiguous to Ity exploitation license that belongs 100% to andegor. Today, The exploration effort is going on. We are quite excited with the result that we have in overall on the Ity area today, we have 7 rigs working out of them, 4 or 5 in the Le Plaque area. 4 on the Le Plaque deposit itself and 3 other looking at addressing other target on Le Plaque.
We expect to announce an update resource on Le Plaque and let's say by somewhere sometime end of second quarter 2019. Sam?
Karma now has guided production at Karma continue increase in Q4. Mining activities ramped up following the end of the rainy season, which focused exclusively on mining oxide ore from the cow pit. In addition, the mill throughput increased as operating conditions improved with increased tachy utilization. Overall, cost have trended lower in 2018. The waterfall chart shows that production increased, thanks to the higher tonnage which was possible due to the optimization were carried out last year.
This more than compensated for the lower grade stacks. For 2019, Karma production is expected to remain fairly flat, while costs are expected to slightly increase due to the mining transitional ore from the cow pit. Patrick on exploration?
On exploration on Karma in 2018, focus was mostly based on Yarden's discovery that was made sometime end of 2018 2017. And we have been delineating this discovery and with some 120,000 ounces added to the resource base. We have been also conducting in 2018 some exploration in a Ronga target, which proved to be positive and both target are going to be also pursued $1,000,000, totaling approximately 27,000 meters. And we aim also to designate other near mill oxide target, mainly focused on testing, the extension of caro North, which still remain open and also along the strike and northern plunge extension of the Yabonzo I was talking before. Seb, So sorry, I go on on Kalana.
Basically, as you may know, I would like to give you some more detail on the Kalana project. Actually, we completed an extensive exploration program in 2018, which has allowed us to rebuild the geological model for the Kalana Maine deposit and by using a more conservative approach to incorporate tighter geological control, especially in term of grade analysis and continuity of mineralization for the high grade nougat effect, the stacked vein set and the dilution. We believe now that this geological model is much more robust and accurate than the previous one, This was achieved by drilling additionally a 30,000 meter inside the Kalana deposit. Where we were able to confirm and to modify slightly the previous geological model, which now we believe is much more strong and concise A total of 135 VINs within 61 VIN packages were individually modeled as opposed to the previous approach of applying geostatistic to only 56 grouped vein packages and thereby provided and upgraded, confidence in the vein package domain boundaries. Mineralized intersection outside of the defined frame, wireframe were continuity was not proven or excluded.
It's a more much more conservative approach that was applied. Also, you will note that the cutoff grade use was lowered from 0.9 gram per ton in the previous evolution to 0.5 gram per ton. Which is our Thunder in endeavor. And we consider this is more conservative that it may better represent the mining part of this deposit. You can see the impact of the grade to the right of the slide 41.
It decreased actually from 4.14to3.7 grams per tonne gold If we take the equivalent 0.9 grams per tonne cut off that was used before and according to the standard we use, we then further decreased the grade to 2.69 on the 0.5 cut off. On the exploration side, the next step for us while we are much more confident on the Kalana resource and quantity of gold and grade and the reputation within the high number of quartz vein is to increase the resource base in the overall by addressing in 2019 through a total budget of $4,000,000. Other target located in the vicinity let's say, less than 6 to 7 kilometer on Kalana and also addressing the first step of exploration of the Fougalia license that is located just immediately to the south of Kalana and that has been granting, granted to us in 2018.
Thank you, Patrick. Just coming back on Kalana, I think strategically in terms of step, we aim to have a feasibility study completed by year end or Q1 2020. We are lucky enough to now have various projects both greenfield and existing mine optimizations to compete for capital. Once the study is complete, we will do a capital allocation trade off to wait this project versus our other internal projects. We are particularly pleased to rate the maturity that our business has gained over the past 2.5, 3 years.
And now talking about other options available to us in the future, Patrick, Will you comment on Fetekro?
Yes. Thank you, Seb. Okay. As you know, we have said before that one of our priorities, defining our strategic plan is to identify areas for where greenfield exploration can produce a new deposit that would be possibly a standalone new project. You will hopefully have seen the major resource recently announced at Fetekro property in Cote d'Ivoire, which is looking very promising.
This property used to, belonged to La Mancha and was injected to the Endeavour portfolio in late 2015, along with the Ity mine. While we knew that the Lafigue target was prospective, And before embarking on a larger exploration campaign, we analyze again all the geology, which highlighted additional nearby target. That's why we focused in 2018 strongly on the Fetekro license, and the potential of the Lafigue target along with the nearby ones. This gives us the comfort that Fetekro had the potential to become indeed possibly a standalone project through, maybe a possible multi pit operation. As such, Fetekro was ranked as a top priority over all our greenfield target to produce a possible standalone operation.
And, actually, we since late 2016, we have been drilling over 32,000 meter mostly focus on the highly prospective Lafigue target. As you have seen, the Lafigue maiden resource stands today at over 700,000 ounces at a grade of 225. These are indicated 500 plus to 20 inferred, including some very high grade pockets located within the Lafigue deposit. And they've already spent roughly $6,000,000 on fetekro since owning it. And this represents a discovery cost of $12 per ounce based on only indicated resource today or $8 per ounce based on indicated plus inferred resource.
This discovery cost is in line with our 5 years exploration target of finding at least 10,000,000 ounces of indicated resource at a global cost of less than $15 per ounce. The initial characteristic of its ore deposit or characteristic and ore body shape shows that it could be amenable to open pit mining as mineralization start at surface while preliminary metallurgical test work done suggests clearly the potential for high gold recovery rates. And on top of that, there is additional potential upside as delineated resource is based on only twothree of the total mineralized area Lafigue. And today, we are still very drilling aggressively the Fetekro target in, starting late 2018 until end of 2019, we plan to drill approximately 45,000 meters. Today, all the results we have are extremely Conforking, we are very excited about the potential of Petekro, which confirmed that some very high reach pockets and part of the deposit are have been confirmed.
Today, we are working around the clock, so to be in a position to update the new resource based on Lafigue deposit, let's say, by the same end of Q2 20 key. So I will now hand back to Sebastien.
Thank you, Patrick. So To conclude, we've had a strong we've had a strong 2018 performance that we can all be proud of. And I hope we've given you the flavor of the continued success as we hope to enjoy in 2019. Our existing operations performed well and in line with the guidance that we gave you at the start of last year with production exceeding the top end of fiscal year 2018 guidance. And even further growth expected in 2019.
This places on a solid financial foundation. The CIL project at Ity continues on track and on budget, and we look forward to the 1st gold pour early in Q2 of next year, while early in Q2, and that's in the coming weeks. Longer term, our ambitions remain unchanged and we will press ahead with the delivery of our 5 year exploration strategy. Additional drill results are expected at Hounde and our greenfield at Fetekro, and we look forward to providing you with them. Before we take questions, I would like to briefly touch upon our You can see here in the slide, the metrics we started with in 2015 compared to the goals that we set.
On the next slide, we're showing you where we started from. We are very happy to show you this slide, which demonstrate where we are now and where we can ultimately go over the next 2, 3 years. Overall, we are on track to achieve a strategic objectives based on our project development, and portfolio management assets that we've made. To conclude, we've invested over $1,000,000,000 into this company which in turn has given us 2 flagship mines optionality in our project pipeline and demonstrated exploration potential while maintaining a healthy balance sheet. Looking ahead, we will soon enter our strong cash flow generation phase with a focus on demonstrating the return on capital employed and looking at capital allocation trade offs.
Including, I would like to thank you all for your time today and specifically also my team for these strong results in 2018. If you have any questions, we would be happy to answer them now. Operator, over to
you. And your first question comes from the line of Dan Rollins. Please go ahead sir.
Yes, thanks very much. Just wondering if you could touch base on just some of the reserve changes that we saw specifically at Agbaou and Karma. And with Agbaou, you basically see a slight drop in total tons, but the grade definitely drops off quite a bit. Could you give a little bit more color what's dry seeing that, from a Agbaou side?
Yeah, sure, Dan. Peder, you want to comment on this?
Yes.
Since let me just pull up Agbaou at the moment. The, the threshold depth selectivity is not 100% on what was expected down. So that's probably the leading portion dilution, at depth.
Okay.
The moderating to the agent also showing greater tons at slightly lower grade.
Okay. And then just that, Karma, you see a similar grade, but a decent drop off in tons, some of that obviously depletion, but anything else going on there?
Yes. Comer's grades, at present, Hanging in there. I think the reduction, there's just some account of the OpEx having a variance from the original DFS input numbers. So it's primarily attributable to the, to the operations costs.
Okay, perfect. And then maybe Sebastien, I was wondering if you go back to your look at your magic box that you put out magic box graph you put in this presentation, you basically have Agbaust stagnant. If we go back to the November 2018 Investor Day, you had about basically moving up in mine life with a little bit of higher costs. It now sort of sits right on the threshold of divestment. Obviously, you have a couple of good years of free cash flow left in the asset.
When do you start to think about potentially divesting that as it starts to move outside of the sort of those key KPIs that you've put out there for your assets going forward?
Good question, Dan. Is why I like the slides because it allows us to have, to keep, the right view on our different assets and the way our portfolio should evolve. I think that we see good cash flow coming from Agbaou for the next few years. I think we on our side with Patrick waiting for some complementary results on the exploration potential in particular on the parallel trends, to see what would be the future of Agbaou. What is clear is that if at some point the mine life continues to reduce and cost continues to go up, then there will be a question of divesting or not Agbaou, which is not the case today.
And I think that today, we still have some good cash flow expected for the next 2, 3 years and still some interesting drillings to be done little trends.
Okay, perfect. And then again, early stages, but carry pump, obviously, some nice grade there, especially in the soft rock. How do you start to look at about incorporating this into the mine plan? Is this potentially an increased throughput or more basically it's to backfill that sort of drop off production in a couple of years?
Good point, Dan. I think the objective for us will be to bring Kari Pump into reserves in, by the end of Q2. As I was mentioning, we got the preliminary results on the metallurgical test, which are very encouraging at similar recoveries than what we have at Vindaloo or even higher. And given that we have a higher grade at Kari Pump, the sooner we can put it in the mine plan, the better. I think that I did hint on the fact that the prospectivity around Kari Pump is also pushing us to try to understand what could be the throughput for Hounde going forward.
And there might be a call at some point if Patrick's team continues to have success there. There might be a call for a potential increase in capacity at Hounde without having to premise on the mine life. So I think that 2019 for this is going to be very interesting. We're thinking about doing a feasibility study for, potentially an expansion of the plant. But more importantly, you know, waiting with a lot of impatience you know, Patrick's results, further results on Kari Pump.
You saw that, Hounde and the Kari Pump area in particular is our biggest exploration budget again this year. I think overall, we did in less than 18 months, 360,000 meters drilling there between end of 20172018. And this year, we're going to be, again, in the range of 160 70,000 meters on that area. So depending on the results, we might have a very interesting case for a potential expansion. And this would, as I was mentioning at the end of my presentation, compete potentially with other other projects such as developing Kalana in the short term, given the return on capital employed that we would get on an expansion project.
Okay, perfect. And then obviously just one last one for me. On fetekro, you got a decent start there on the this is being your 1st greenfield asset potentially within the company, beyond, I guess, the IDCIL. What type of resource size or endowment tons in sorry ounces and grade would you be looking forward to say this is a standalone project that could be of mind assuming the economics are there, but just roughly ballpark, what type of targets are you looking at at an ounce in a grade range for for Fetekro here or for new assets going forward?
It's a good point and a good question. And I think that, that's an evolving evolving metrics, given that the company is targeting more and more now on the on bigger assets and better assets. I think that, you know, when Endeavour launched Agbaou, there was a bit less than a 1,000,000 ounce of reserves at that time. And when you see it, what Agbaou has been delivering for the last 4 or 5 years, it's impressive. In the case of Fetekro, we said with Patrick, the fact that we ideally would like to see above 1,000,000 ounce of indicated resources by year end to start seeing there some ground for potential projects going forward.
But, key metrics, you know, will be, you know, closer to, you know, 2,000,000 ounce and above and above 2 grams per ton to start to be, in the ballpark of the type of projects that we would be looking for and considering.
Perfect. Thanks very much. Good luck on ADCIL and, appreciate you, and your management team sticking to the strategy laid out. It's nice to see a consistent strategy in the industry.
Thank you very much then.
Thank you. Your next question comes from the line of Michael Stoner. Please go ahead, sir.
Hi guys. I've just got a couple of questions, if I may. Just picking up on the discussion on Agbaou. Obviously, you've reduced the spend expiration spend for 2019 there. Are you is that because the bulk of the work has already been done, and some of that work's rolling over into 2019 and still to deliver results?
Or is that driven by a kind of cost of discovery decision?
I think it's a bit of a mix of both, Michael. And, and, I'm trying to push, to push hard, you know, Patrick to spend a bit more on Agbaou, but at the same time, we have to be sort of realistic on the exceptional results we are getting at Kari Pump. And given the challenge that we see of a potential expansion at Hounde, this has been a priority. The other one has been the focus on Le Plaque and now Fetekro, which is growing and growing. So I think it's more the fact that Agbaou in terms of priorities has been decreasing compared to others, other targets I do keep in mind how important the mine life and bringing in your new resources to Agbaou is important.
At the same time. I mean, we have another strong 4 to 5 years and good visibility for the next 4 years there. So, I'm not completely desperate on getting good results with some of those parallel end targets coming in 2018.
Okay. Thank you. And then on the potential to expand Hounde, would you only do it if kind of post expansion you could still show a plus 10 year mine life? Or would you maybe make that decision kind of ahead of exploration success improving up reserves?
I think it's, clearly, the objective is, if we were doing an expansion is to be able to keep a 10 year plus mine life, now between the decision and the commissioning of that expansion, there might be depending on where Patrick terms in terms of final results, there might be an anticipation if we believe that we're going to be there. But we would do it only if we have strong, you know, conviction that we would end up at the end with above 10 year's mine life.
Okay, perfect. And then one on the financials. There's been some reasonably lumpy quarterly working capital moves. Other than, I mean, how are you guys thinking about moves through 2019? How much of the working capital for it CIL has already been kind of built up in terms of spares and inventory, etcetera.
Are you expecting any further major inflows or outflows short term?
Yes. Hello, Michael Vincent speaking. Yes, we are expecting, to build up the working capital of ity, there is, in fact, some, inventories that have been done for ity CIL, but, it's quite minimal compared to what we are expecting. So, you have to keep that in mind, that effectively, we have an outflow of working capital, mainly linked with Itycl start. For the rest, we are mainly expecting that Hounde or even Karma will continue and even also, Agbaou will continue to use their inventories and top that should generate an inflow for a positive variation of the working capital.
So all in all, I can tell you that we are expecting a negative outflow. I cannot give you a number, per se because we don't know if you think cadence, but yes, you have to to forecast negative working capital also.
Okay, perfect. And then just on kind of the change of COO and kind of strategy around growth. One of the things I wanted to check was, is it just Jeremy departing or are kind of is the rest of the construction team remaining with the business? And then could we take this as, I mean, you mentioned that you're going to be focusing on free cash flow and returns on capital, etcetera. But, could we assume the focus now is going to be on expanding your existing producing assets And if you were to do M and A more likely to be a producing mine rather than a development project, is that a fair kind of summary?
That's a fair assumption. I think that we've got better on the line. I mean, better. Are you thinking to leave?
No, so,
Yeah. We commented the fact that, you know, Jeremy wanted and we had a discussion that as we were approaching the commissioning of Ity, it was the right time for, to, to, to, to, bring COO that will be highly focused on the operations as we moving out from a major phase of construction with Agbaou, Hounde, and then Ity, you know, 3 mines in a row. But, you know, we've got a great construction team, thanks to Jeremy also, who's train and grow a very, a very strong team, which is now for the whole ity construction has been under the leadership of better And I think Peter will be very pleased to demonstrate to the market the quality of what he has just built with ity, with a few weeks from pouring the first gold. And as we touched base earlier, there several projects in the pipeline, including a potential expansion at Hounde or some projects like Kalana. Which are still in the pipeline.
So we still have a lot for our construction team to be busy for over the next 12, 18 months. While they be also busy in ensuring that we have a smooth and successful ramp up at Ity. So still a lot of projects for all of us, but it's fair that the focus going forward in particular for the 2 years kind of demonstrate our ability to generate strong cash flow and really focus on return on capital employed now that we have those 2 flagships in the portfolio.
Perfect. That's all for me. Thank you for your time, gents.
Thank you very much.
Thank you. Your next question comes from the line of Jody Mark. Please go ahead.
Good afternoon, evening, morning, depending on where you are. Yeah, just a couple of follow on questions, I guess, maybe more on a holistic sense talking on the future of capital allocation and growth. Maybe more holistically, what you're sort of capital allocation strategy is when you're looking at those 2 principal assets in the portfolio now given the resource growth been enabled and enabled by Patrick's team. What are you thinking there in terms of what are the interplays that you consider trying to tease more value, out of the resources, at Hounde and I think, plan upgrades versus resource base. Obviously it is your longer operating life.
So does that go first versus Hounde? I'm just trying to get a sense of what you're thinking there and any thresholds for investment returns?
Thanks, Jordie. I think that on the exploration side, we, we committed this towards this 5 year strategic plan. In what $40,000,000, $45,000,000. And given the recent success, last year was even slightly above $50,000,000 in is going to be, again, around $50,000,000. I think when, as long as the team is going to discover good ounces that two grams per ton type of grade oxide and for less than 12 $13 per ton per ounce.
And we'll continue for sure to invest in this exploration portfolio. I think the big shift in 2019 is the fact that we're going to try to focus on on more highly, high return on capital employed projects. And it's clear that If we continue to have good success at Kari Pump, then, and Hounde expansion would be a very attractive in a return on capital employed project compared to launching a brand new construction of a new mine like Kalana. And I think that we want to demonstrate that Given the level of net debt we currently have, for building those two mines, it's important for us to be able now to generate as much cash flow as we can to deleverage the balance sheet and continue to prepare the portfolio for the future.
Okay, great. That's a great answer. And maybe moving on to Patrick, perhaps more Venutia on La Plaque And Exploration success, ongoing, I guess, at Ity. Just trying to get an idea of what deposit style of the park is and what you're evolving interpretation there and how that relates to Samuel and Dupyter, looking at that and particularly how that affects the metal balance in those in those deposits because obviously it's a bit of a interesting metallurgical recovery characteristic portfolio across those that asset base?
Okay. As far as the La Plaque is concerned, it's slightly, I would say it's different from what ity type deposit is and the type deposit is. As far as we know, we don't have any kind of let's say, arsenopyrite stuff whatsoever in the black area. So there is nothing to see to compare with APO. Actually, we have 2 type of two main type of mineralization in the plug.
The main one which carries a heavy load of mineralization He's had the compact of 2 inquires, the first one being a diorite and the second one, a granular diorite. The mineralization is being proved to follow completely and regionalizes contact. So all the system remains open to Arity and also to other Southwest. What we have seen and we have it's too early to mention, but we are very, very excited by a very, sometimes very, very high grade and a significant sickness. What we can say that we are working on the clock to try to book as many resource as possible by end of second quarter and also at the same time trying to develop additional target that we discovered let's say, to the southeast of the Plaque, which are much more like a shared zone within the Grand Audio Wright, parallel 1, And also in this area, we have been working a lot, you know, to build a new platform for drilling in the at area close by the cavalry.
So, you know, in the overall big, larger all the black area, it's just the beginning So, first, we are very excited. And secondly, hopefully, you will see some good numbers. Let's say in a few months from now.
Okay, great. Thank you very
And your final question at the moment comes from the line of Mark Bentley.
Good afternoon, gentlemen. I have some observations and a question. So the observations are I observed that some of the exploration results are indicating that your targets may have resources at depth. The company has so far performed well with open pit mining, but the only underground mining you've conducted was at Bakoto, and financially, that wasn't very successful. This makes me wonder whether the company requires more tease in underground mining.
And my question is, is that something the board is considering and
what is
the board's view on that issue?
Thanks. A very fair question and I think the board has insisted rightly that we should, you know, more often do some in-depth drilling, more depth drilling to see, you know, the type of resource that we have under our current, current deposits. Which we are starting to do. And Patrick, in particular, has been looking at the outlook at ity and looking also at Agbaou. Deep.
So there are a few areas that we are investigating. In terms of competencies, I'm proud to say that that's part also the reasons why we, I decided to bring on board Mark Marcon, who has also a strong variance in the underground mine operations. As you might recall, he was, before being at Goldfield, and he was also the CEO of Acacia, who had big underground mines. And just previously, he's just sending his CO role at Centamin, which has also a large open pit and high grade, you know, underground operations. So that question, and this is why the profile of Mark Morcombe was also picked up for heading our operations going forward.
Thanks very much.
We still have no Q and
Thank you very much. Well on that basis, I'd like to thank you all for attending this year end results. 2019 is definitely going to be an exciting year, both for the industry, given what's happening, but also for Endeavour. With the commissioning of ity and also with the anticipated results of further drillings at Kari Pump and Fetekro. So on that note, please have all our thanks for supporting our company, thanks to our management team for all the efforts in 2018.
And wishing you
for today. Thank you for participating. You may all disconnect.